Will Trump Kill the Bourbon Boom?

By Fred Minnick

July 11, 2017

If President Trump follows through on his threat to impose tariffs on steel imports, expect to see an immediate response from the European Union — including retaliatory tariffs on, of all things, bourbon.

This may seem an oddly disproportionate choice. Everyone needs steel; bourbon, on the other hand, is just a hipster fad and a good-ole-boy mainstay, right?

In fact, a punitive tariff on bourbon and other American whiskeys would be both a symbolic and a substantive body blow — a strike at a unique American product that is enormously popular overseas. Should the tariff dominoes fall, it will be a case study in the shortsightedness of a supposedly “America first” trade policy that, in the end, hurts Americans the most.

Mr. Trump’s intention to pursue better trade deals for the American people is laudable, and done right it could add jobs to some of America’s long-suffering industries. But very few industries are truly domestic, with no interests abroad, and when free trade suffers, they suffer, too.

Still, why bourbon? Trade officials aren’t stupid; when they retaliate, they hit where it hurts — which is not always obvious.

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A worker moving bourbon barrels outside a distillery in Frankfort, Ky., last year.CreditLuke Sharrett for The New York Times

Consider a recent trade battle between the United States and the European Union. In 2009 Washington imposed a 300 percent tariff on Roquefort cheese to force Brussels to lift a ban on American beef. Roquefort cheese may not be a strategic European industry, but it’s the lifeblood of many French villages, and the tariff was among the reasons the union eased the ban.

Kentucky and Tennessee face similar financial burdens if trade talks go south and countries target American distilled spirits. Thanks to the $1.5 billion in spirits that America now exports, over the next six years Kentucky distilleries will invest more than $1 billion in expansions and new facilities.

In rural Lynchburg, Tenn., the Jack Daniel Distillery is undergoing a $140 million expansion, likewise made possible in part by its explosive growth overseas, where it sells 65 percent of its output. Needless to say, a retaliatory tariff on whiskey would put those plans, and the many Lynchburg jobs that rely on them, at risk.

A looming trade war isn’t the industry’s only concern. Mr. Trump’s decision, early in his term, to pull out of the Trans-Pacific Partnership, and his aversion to trade pacts in general, undermines many American exporters’ long-term growth strategies, which rely heavily on overseas markets that lap up “made in America.”

Take Vietnam, a TPP member that increased American spirits imports by 173.9 percent between 2015 and 2016, to $45.9 million, making it the category’s fastest-growing importer. Under the trade deal, the country is expected to drastically increase its American whiskey consumption.

Without American membership in the TPP, a 12-nation pact that created zero tariffs for American products, Vietnam’s 45 percent duty on bourbon and other distilled spirits will no longer be phased out, putting those expectations on ice.

It’s not just about tariffs. When you’re selling “America” abroad, you need deals in place to make sure no one else is copying the brand. But absent trade agreements, other countries are free to sell their own versions of American products. Like Champagne and cognac, bourbon’s name protection relies largely on trade deals that set standards and definitions; without them, foreign distillers are surely tempted to slap “bourbon” on anything they want.

Trade deals also create structures to combat counterfeiting, another big problem for exporters. Asian countries already pose a great counterfeit risk for iconic brands like Jack Daniel’s Tennessee Whiskey and Maker’s Mark. While the TPP would not entirely have curbed this problem, it would have given American companies distilling the real thing stronger legal protection.

Of course, the TPP is not Mr. Trump’s only target. The president wants to renegotiate the North American Free Trade Agreement and possibly impose a 20 percent tariff on Mexican products.

Again, this hits the spirits industry in surprising ways. Like many successful American companies, distillers are globally diversified. Heaven Hill and Sazerac, which make Evan Williams and Buffalo Trace bourbons, are family-owned companies with deep roots in America that at the same time have a big overseas reach, importing or owning foreign facilities and marketing tequilas, rums and vodkas, as well as other whiskies.

Since tequila cannot be produced in the United States — it has a geographical protection similar to bourbon’s and can be made only in Mexico — Mr. Trump’s trade policy will damage American businesses that own, import or market tequila. And if we pull out of Nafta, expect to see a proliferation of Mexican distillers suddenly pumping out “bourbon.”

The liquor business is a relatively small part of the American economy. But whiskey has an outsize role as a flagship export, a symbol of “America” overseas. And its woes are hardly unique — the same challenges that whiskey faces under an America-first trade policy will be visited on countless export-led industries, precisely the sorts of businesses that are looking to Washington to clear the way for a more robust role in the global economy.

It’s hard to argue with Mr. Trump when he says he wants a trade policy that produces more jobs, better pay and a fair playing ground abroad. But threatening tariffs and pulling out of trade deals can quickly boomerang, hurting the very sectors of the economy that he’s trying to protect — even one as quintessentially American as bourbon.

Correction:

An Op-Ed essay on July 12 about whiskey exports misstated the annual value of American spirits exports. It is $1.5 billion, not $1 billion.

Fred Minnick is the author of “Bourbon: The Rise, Fall, and Rebirth of an American Whiskey.”